Monday, September 25, 2006

Peer-to-peer micro-finance is expanding from lending marketplaces like Prosper and Zopa to peer-to-peer affinity-driven financial support for a wide variety of arts, humanitarian and software development projects.

The phenomenon has many names: crowd funding, crowd sourcing, social finance (coined here?), and virtual affinity group capital. Crowd funding is the natural extension of memes like the long tail, smart mobs and social networking and is an obvious capability of an increasingly linked online populace. Social finance is Money Now! - instant market support for good ideas attached to validated reputations.

Several websites are accommodating crowd finance: bands via Sellaband (description), movies via A Swarm of Angels, and citizen vlogging via HaveMoneyWillVlog (using a Wordpress plugin) which importantly lists the deliverable(s) and has feedback loops for on-project progress. Austin TX-based Fundable is a clearing house site for social finance and sees many uses for its platform including project financing for individuals, non-profit organizations, relief efforts and software development projects as well as other social finance practicalities such as splitting the cost of purchases and club dues collection. Fundable's beta site is a bit under-built (needs better listing and search functionality) and their 7% fee is steep (Prosper takes 1% of funded loan amounts).

Social finance projects are most often open-source, and are sometimes executed in interaction with the funding sponsors. A minimum contribution of $10 is generally required and the total amount to be raised is a few hundred or a few thousand dollars. PayPal (perhaps finding itself much more extensible than initially envisioned) handles the mechanics of the crowd pledges and fund disbursement, sometimes including some degree of escrow functionality for the commitment of funds and return of pledges if the project does not fully fund.

The funding levels are still fairly low for social finance projects but as the model becomes more proven, hopefully the OpenBasicResearch.org idea could be used for longer-term science research funding and looking out even further, the economy could shift to include freelancers with consistent regular affinity support as dependable sustenance.

It is exciting to see the power of virtual affinity groups in providing capital in both lending and grant financing models. The next obvious capability of virtual affinity groups will be in providing political support. The impact of social finance, text and video blogs and video clip websites like Blip.tv and YouTube will likely be significant in the 2008 presidential elections.